Coinbase shares faced an earnings test ahead of the company’s third-quarter announcement on Oct. 29, as Wall Street forecast a sharp decline in revenue. Short interest reached 10.81% of the float, although reported short positions declined before the results. The stock was trading near $160, with $150 identified as a key support level and $200 as a potential resistance area if a bullish reversal develops. The results were set to show how much of the quarter’s crypto rally reached the exchange’s own financials.

Analysts Expect Coinbase Revenue to Decline

Bitcoin and most altcoins staged a strong recovery during the third quarter. BTC rose from below $58,000 during the quarter before rebounding to $87,300. Ethereum also climbed from $1,520 in July to a high of $2,796.

The cryptocurrency rally benefited Coinbase in several ways. Bitcoin funds recorded more than $6.2 billion in inflows during the quarter, supporting activity in the crypto exchange’s ETF custody business. Coinbase is described as the biggest custodian of crypto ETFs.

The rally also increased the mark-to-market value of Coinbase’s digital-asset holdings, including Bitcoin and Ethereum. In addition, signs of higher trading volume across cryptocurrencies suggested that transaction activity at the company may have increased. Because exchange revenue is closely tied to trading activity and custody demand, the quarter served as a measure of whether asset-price gains alone could offset analyst expectations for lower revenue.

Despite those factors, analysts expected Coinbase’s quarterly results to show a revenue decline. The average estimate called for revenue to fall 34% year over year to $1.22 billion. Analysts also expected earnings per share of $0.07, compared with $1.50 in the same period last year. Coinbase had missed analysts’ estimates during the previous three consecutive quarters, a streak that gave the Oct. 29 report added weight.

Insider Sales and Short Interest

The earnings announcement came as Coinbase insiders continued to sell shares, although at a slower pace. Data compiled by Barchart showed that insiders sold 127,188 shares during the previous three months. At the current price, those shares were worth more than $20 million.

Over the previous 12 months, insiders had sold more than 1.36 million shares, valued at more than $220 million at the current price. The sellers included Alesia Haas, Coinbase’s chief financial officer, and Marc Andreessen, one of the company’s earliest investors.

Investors often view insider selling negatively because company insiders may have access to information unavailable to other market participants. Meanwhile, Coinbase’s short interest had continued to rise during the year and stood at 10% in the available report. The elevated level indicated that some market participants expected the stock to decline in the near term.

The options market pointed to the possibility of significant volatility after the earnings release. Implied volatility stood at 115%, compared with historical volatility of 60%. The options chain also contained more calls than puts. Most call options were concentrated at a $170 strike, above the approximately $160 share price, with another cluster at $180. Taken together, the positioning framed the release as a potential volatility event, with the strike clusters above the share price serving as a reference point for where options traders had concentrated their exposure around the print.

Technical Outlook for COIN

The daily chart showed that COIN shares had remained under pressure in recent weeks. The stock had formed a descending channel that was described as part of a bullish flag pattern. It had also developed an inverted head-and-shoulders formation, a pattern commonly associated with a potential bullish reversal in technical analysis, and was positioned at the pattern’s right shoulder.

A move above the pattern could expose the $200 level, which was about 25% above the then-current price. By contrast, a move below the $150 support level would invalidate the bullish technical outlook. These were competing scenarios for the stock as investors evaluated whether the earnings report could reverse its recent decline. The Oct. 29 report stood as the near-term catalyst for both paths, with the market’s reaction to the numbers set to test the $150 support and the $200 resistance.

This article is for informational purposes only and does not constitute financial advice. Stock and cryptocurrency investments involve volatility and potential losses. Readers should conduct independent research before investing.

Source: The Market Periodical.